C. Local Taxation (RA 7160, as amended)

Fundamental Principles and Common Limitations on Local Taxation

Under the Local Government Code of 1991 (Republic Act No. 7160), the exercise of the taxing and other revenue-raising powers of local government units is governed by specific fundamental principles¹. Taxation must be uniform in each local government unit, and all taxes, fees, charges, and other impositions must be equitable, based as far as practicable on the taxpayer's ability to pay, levied and collected solely for public purposes, and free from being unjust, excessive, oppressive, confiscatory, or contrary to law, public policy, national economic policy, or in restraint of trade¹. Furthermore, the collection of local revenues must never be let to any private person, all revenues collected must inure solely to the benefit of and be subject to disposition by the levying unit unless otherwise provided, and each local government unit must, as far as practicable, evolve a progressive system of taxation¹.

Unless otherwise provided in the Code, the taxing powers of provinces, cities, municipalities, and barangays are subject to common limitations and do not extend to the levy of the following:

• Income tax, except when levied on banks and other financial institutions²;
• Documentary stamp tax²;
• Taxes on estates, inheritance, gifts, legacies, and other acquisitions mortis causa, except as otherwise provided²;
• Customs duties, registration fees of vessels, wharfage on wharves (except wharfage on wharves constructed and maintained by the local government unit concerned), tonnage dues, and all other kinds of customs fees and charges²;
• Taxes, fees, and charges upon goods carried into, out of, or passing through territorial jurisdictions in the guise of wharfage, tolls, or otherwise²;
• Taxes, fees, or charges on agricultural and aquatic products when sold by marginal farmers or fishermen²;
• Taxes on Board of Investments-certified pioneer and non-pioneer business enterprises for six and four years, respectively, from registration²; and
• Excise taxes on articles enumerated under the National Internal Revenue Code, as amended, as well as taxes, fees, or charges on petroleum products².